SHORTAGE IN SUPPLYING HOUSES FOR AFFORDABLE HOUSE MARKET

Shortage in Supplying Houses for Affordable House Market

Pedro Rico
Thitirat Pongprajuc
Nathanael Keller

Salt Lake Community College

SHORTAGE IN SUPPLYING HOUSES FOR AFFORDABLE HOUSE MARKET

Shortage in Supplying Houses in Affordable House Market

A summary of the news article
What is going on with the housing market in the United States that has people worried?
Kathryne Vasel reports in the article Is 2018 the year to buy a house? published on CNN.com
that “home buyers aren’t going to catch much of a break this year” (2018), but who are the home
buyers Kathryne is referring to? The article reports that many first-time home buyers, low-
income, working-class families seem to be struggling with affordability and when a house does
go on sale it has quickly been sold. In essence, this means that the “supply of housing still won’t
be able to keep up with the high demand” (Vasel, 2018). According to Vasel, experts claim that
“a balanced housing market tends to have about six months of supply” (2018).
As of late, suppliers have had, half of that supply during the month of December. The
high demand and the lack of houses have been contributing to the shortage of supply in the
market. Why is there a shortage of affordable houses in the first place? Apparently, builders have
been spending their time working on profitable luxury housing, which means that the houses that
are being built have been economically inaccessible for the vast majority who are in the market
for a home.
How are they going to address this problem? Vassel mentions Keith Gumbinger, Vice
President of HSH.COM, a mortgage website, is expecting builders to “shift downmarket”; “they
have been shifting toward more middle-market and starter homes . . . the focus has been lower
cost” (2018). The question of, when will be a good time to buy? is still up in the air, but
Gumbinger is telling people to be prepared to “get your credit as high as it can be, get your loan
paperwork in order and easy to get to” (Vasel, 2018).
An explanation of how the events relate to the economic model
Last year, the economic atmosphere of
P S
the US housing market was strained because
the quantity of demand and supply of
affordable housing were unbalanced. As the
Pe
graph illustrates, the demand for the
Pc
affordable houses was greater than the supply
Shortage D that created the market shortage. Moreover,
the large quantity of demand was caused by
Qs Q Qd Q
e
SHORTAGE IN SUPPLYING HOUSES FOR AFFORDABLE HOUSE MARKET

that many firms moved their production bases to some states such as Texas (Vasel, 2018). The
job creation could affect the demand curve to shift to the right because it increases local
consumers’ income meaning that buyers will have more ability to buy their new house. This can
make the shortage of housing still maintain the distance between the demand for housing and the
supply in the number of houses in the marketplace.
Moreover, as stated in the article, the demand for housing is always greater than the
supply in the marketplace. The shortage in housing supply was huge in 2017 because, normally,
there are six months of supply in the market, but in December last year, there was only three
months of housing supply available for the buyers (Vasel, 2018). This economic behavior will
eventually make the price of housing increase. It could make consumers willing to pay more to
obtain the ownership of the new house. It possibly leads to a bidding war in the middle-class
house market which makes the price increase as more buyers are willing to pay a higher price for
the goods. In this situation, some customers would leave the market if they could not afford to
pay such a high-priced house.
In addition, the demand and supply model explains that demand exists when buyers are
willing and able to buy goods, and when the demand decreases, the price of goods will decrease
to the market equilibrium. However, this is not the case because the demand for affordable
housing is a lot greater than the number of houses supplied in the market. Even though the
number of buyers decreases, there is still a shortage in the middle-class housing market.
Another factor that could cause the shortage in the market is that suppliers have been
focusing on building luxurious houses so that they can make more profit when the houses are
sold. However, the current taste of most buyers is a low-priced house, so the existing supply,
which is luxurious houses, does not match the buyers’ taste. Therefore, it creates unbalanced
demand and supply in the market. The solution of housing suppliers in this year is that they are
reportedly going to build more houses for first time home buyers and the middle-class market.
This supply decision will decrease the gap between demand and supply in affordable houses, and
it will temporarily relieve the tension of the market shortage from last year.
According to the article, 1.3 million houses will be supplied in the market this year. This
means that supply will increase which makes the shortage gap smaller. More buyers will get a
chance to have their own house because the price of housing will decrease as more goods are
added to the market. The decision to build more houses for middle-class buyers will not
SHORTAGE IN SUPPLYING HOUSES FOR AFFORDABLE HOUSE MARKET

permanently solve the housing issues, but it at least calms the market down by using the market
mechanism to bring unbalanced demand and supply to the market equilibrium as much as
possible.
An evaluation of the policy or action being taken.
The 2018 housing market looks like it is going to be controlled by the sellers. There are
fewer houses being built, making the houses that are currently available have a higher demand,
and because of that, the housing market will find a higher equilibrium price while the people and
companies that build houses focus on increasing the number of new affordable homes available
for sale. When these new houses start to show up on the market, they may probably be part of a
surplus and will end up lowering both the demand and equilibrium price for housing.
A. From an economic standpoint, is this a good or bad Idea?
As a group, Pedro, Nuch and I think that having more low-priced homes available is a
good idea and will help more people have an affordable roof over their heads while lowering the
demand for housing using a supply surplus and bring the overall price for homes lower.
Moreover, building more low-priced houses will help boost economy in that area because more
labors will be hired to increase the rate of outputs which is the affordable houses for first time
home buyer and the middle-class house market.
B. What other perspectives should be considered in evaluating this position?
We thought about how this could affect many perspectives aside from strictly the
economic housing market. With more houses being built, there will be more land bought and
sold affecting both the markets for land and impact on the environment. Alongside that, business
will be affected; with a greater number of homes on the market, there will need to be more
Realtors bridging the gaps between hopeful sellers and prospective buyers. With higher closure
rates, these Real Estate agents are going to make tidy profits on commissions and have more
money to spend on things that may have been solidly classified as “wants”. This will be a boon
for the market as a whole with more money actively circulating and changing hands.
In short, building affordable housing in 2018 will likely stimulate many markets in a
positive way.
SHORTAGE IN SUPPLYING HOUSES FOR AFFORDABLE HOUSE MARKET

Reference
Vasel, K. (2018, January 23). Is 2018 the year to buy a house? Retrieved January 24, 2018, from
http://money.cnn.com/2018/01/23/pf/buy-a-home-2018/index.html?iid=hp-stack-dom